South Africa’s short-term insurance industry has begun, tentatively, to pay out millions and billions of rands worth of business interruption insurance claims under the watchful eye of the Reserve Bank’s Prudential Authority and the Financial Sector Conduct Authority.
However, legal clarity has been provided by a number of courts, which found that the two events were linked: a lockdown would never have occurred without Covid-19. The matter went all the way to the Supreme Court of Appeal where, in the case between Guardrisk and Café Chameleon, the higher court upheld the judgment of a lower court in favour of Café Chameleon.
“Insuring a pandemic like this was not expected or budgeted for. The way insurance – and reinsurance works – is that the claims of a few are made by the payments of many. Providing for blanket pandemic cover is not something the models planned for. It is a lesson the sector has learnt.” That’s because discussions with reinsurers – the industry’s insurers – are at a delicate stage. Typically SA insurers “lay off” some of their risk to these multinational reinsurers, which means that the local insurers pay their clients directly, but are then able to claim some of those payments back from the reinsurers.
In this regard, on 15 January the UK Supreme Court upheld the verdict of a lower court that last year found in favour of the Financial Conduct Authority and policyholders in a test case on business interruption insurance coverage. Notably, Santam has limited its full and final settlement offer to three months of losses rather than to 18 months as stipulated in the SCA judgment involving Guardrisk and Café Chameleon.